Economics
What the exam expects
Economics questions test foundational micro and macro reasoning: scarcity, opportunity cost, supply and demand, market structures, fiscal and monetary policy, and international trade. Strong candidates can read a scenario and identify which curve shifts, in which direction, and why.
Core concepts to master
- Scarcity and opportunity cost: every choice has a forgone alternative; opportunity cost is the value of the best alternative, not the sum of all alternatives.
- Supply and demand: distinguish a movement along a curve (caused by price) from a shift of the curve (caused by non-price factors like income, technology, expectations, or input costs).
- Elasticity: demand is more elastic when substitutes are plentiful and the good is a luxury; less elastic for necessities.
- Market structures: perfect competition, monopolistic competition, oligopoly, and monopoly differ by number of firms, product differentiation, and barriers to entry.
- Macro policy: fiscal policy (government spending and taxes) versus monetary policy (central bank control of money supply and interest rates). Expansionary tools fight recession; contractionary tools fight inflation.
Traps to watch for
A price change never shifts its own demand or supply curve-it moves you along the curve. Questions also conflate fiscal and monetary tools; remember that the central bank does not set tax rates. Watch for "which is NOT a function of money" items: money serves as medium of exchange, unit of account, and store of value-not as a source of intrinsic wealth.
Rule of thumb
For any curve question, ask: did price change, or did something else change? Price = move along. Everything else = shift.
Worked example: Consumer incomes rise and demand for a normal good increases. The demand curve shifts right; equilibrium price and quantity both rise. No supply curve shifted.